Maybe the electric utilities are right, for a change. Maybe net-metering—the ability to run your kilowatt-hour meter backwards, with solar panels on your roof or a windmill in your backyard–is not the best policy for America, or for Americans. (See related, “As Solar Power Grows, Dispute Flares Over U.S. Utility Bills.”)

But the utilities’ populist appeal to fairness and equality is disingenuous. When did electric utilities ever care about justice–or the poor?

If they are right about net-metering, it’s for all the wrong reasons.

They want to stop solar photovoltaics (solar PV) now. They want to put it in the grave before it takes even more market share from their comfy business. Climate change and future generations be damned.

The utilities are under threat as never before. They see what’s happened in Germany, where utility profits are plummeting as Germans take more and more control of their own electricity generation. Utility companies will be ruined if they let that happen here. So now’s the time to kill net-metering and with it rooftop solar PV while they still can.

Maybe we should let them.

I can hear the howls of derision from the usual suspects: the solar PV industry, the solar leasing companies, and their sycophants in the advocacy community.

Yes, we should fight a rearguard action to keep the utilities and their legions of attorneys fully engaged. In the meantime, while the utilities are busy snuffing out net-metering, we can bypass them altogether and implement a far superior policy that will put a lot more solar on people’s roofs—solar that people can own themselves, independent of the banking industry offering them deals “to good to be true.”

After all, one of America’s most revolutionary energy policies was introduced in 1978 when the utilities were too busy trying to kill another competing industry to notice as the Public Utilities Regulatory Policy Act (PURPA) passed Congress.

PURPA allowed independently-owned renewable generators to be connected to the grid. Suddenly, the grid was no longer the utility industry’s sole domain. PURPA said you could connect your solar PV system to the grid, but it didn’t spell out how much you would get paid for your electricity.

PURPA laid the foundation for what came next—a policy that not only allowed you to connect to the grid, but that also set the price, a “tariff” in utility jargon, that you would be paid for the electricity you fed into the grid—feed-in tariffs, or FITs.

Feed-in tariffs are the alternative to net-metering and their time has come. FITs have been likened to PURPA on steroids and they are as American as apple pie. It was a crude feed-in tariff that launched renewable energy in California during the early 1980s. In that program, you could connect your biomass, wind, or solar plant to the grid, get paid a fixed-price for ten years, and then get paid a floating price for another twenty. And it worked—spectacularly. For two decades following that first feed-in tariff, the Golden State generated about 2 percent of its electricity from wind energy alone.

Since then, Europeans picked up the renewable energy torch, particularly in Denmark, where last year the Danes generated 43 percent of their electricity from biomass and wind energy, and in Germany.

Germans don’t use net-metering, and yet last year they produced one-fifth of their electricity from wind, solar, and biogas. No, the Germans use feed-in tariffs. They saw what we accomplished decades ago then set out to adapt and refine the concept. The result is a modern system of feed-in tariffs that has catapulted Germany to the front ranks of renewable energy development—rooftop solar PV included.

Numerous other countries around the world have followed suit, adopting feed-in tariffs of their own making. In fact, more countries use feed-in tariffs than use net-metering.

Most significantly, more renewable energy—by far–has been developed with feed-in tariffs than has been installed through net-metering. The International Energy Agency found in a recent study that only 2 percent of solar PV worldwide was installed primarily through net-metering. The numbers are just as lopsided for wind energy, biogas, and other renewables.

What sets modern feed-in tariffs apart from those developed in California during the early 1980s—and from net-metering–is that the price paid for electricity from different renewable sources differs as well.

In the old California system, a wind farm was paid the same price as a biomass plant or a solar plant, even though they were quite different from one another. The same is true today with net-metering. Each technology that runs the kilowatt-hour meter backwards is effectively paid the same price, the retail price of electricity, regardless of how much the electricity actually cost to produce.

In the modern or “advanced” system like that used in Ontario, Canada, wind energy is paid one price and rooftop solar another. Each technology is paid a price that reflects the average cost of generating electricity with that technology.

This approach decouples the price paid for renewable energy from both the wholesale and retail prices of electricity. Feed-in laws essentially bypass all the ideological theory and arcane mumbo-jumbo that obscure electricity rate-setting in the US.

For each technology and each application, prices are determined so as to provide a fair and reasonable rate of return. This enables anyone—anyone who wants to invest in building the infrastructure that will power America in the 21st century–to profit from renewable energy.

It is this simple idea—to pay a fair price for renewable energy—that has enabled German citizens to build and own nearly half of all the wind turbines, solar PV, and biogas plants in the country. Individual German citizens—not their utility companies–have invested more than $100 billion in renewable energy. They have done so because they are paid a fair price for their electricity and because they can install the size, type, and amount of renewables that is the most economic for them and the best fit for their communities.

Net-metering served a useful purpose in the dark days of the Reagan-Bush-Clinton era. Net-metering then was a call to arms for hobbyists and guerrilla solar activists out to prove a point–solar works, your meter will run backwards, and the lights will stay on.

But net-metering was never intended to be a policy for the industrial development of renewable energy. It alone can’t do that. Retail electricity prices in North America are simply too low to make rooftop solar PV, for example, profitable without hefty subsidies.

Why run your kilowatt-hour meter backwards at 10 cents per kilowatt-hour when it costs you 20 cents to 30 cents per kilowatt-hour to generate it with solar PV? Without federal or state subsidies, net-metering seldom makes any economic sense, even today with the rapidly falling cost of solar PV.

Net-metering was an appealing policy at one time, because it gave politicians the perfect cover for appearing to take action on the public’s demand for renewable energy, while doing nothing of substance to threaten entrenched electric utilities’ political and economic power.

Thus, politicians would typically set a low limit on the amount of renewables that could be installed in a region under net-metering—often just a few percent. They certainly wouldn’t set the limit at anything like what the Germans (5 percent solar PV) or Italians (7 percent solar PV) have already accomplished.

Moreover, they typically also limit the size of any individual installation, often a paltry 10 kilowatts, and sometimes—when they’re generous–up to 2 megawatts. (We certainly wouldn’t want to rock the utility’s boat, now, would we?)

Worst of all, net-metering limits renewable development to an existing “meter”. This precludes “greenfield” sites that don’t already serve a utility customer, a further restriction on who can use net-metering and how big a renewable project they can build.

With all the restrictions on net-metering, many Americans are prohibited from installing and owning their own solar, wind, or biogas power plants where they want to and of the size that works best for them. Net-metering locks out apartment-dwellers and renters from participating in the renewable energy revolution.

Net-metering is not–nor can it ever be–a comprehensive renewable energy policy. If we take climate change seriously, net-metering simply won’t get us where we want to go: massive amounts of renewables in the ground, and quickly. Net-metering will never give us “plus energy” houses or “plus energy” buildings, because we often literally have to give our surplus electricity to the utility company for free. How fair is that?

Yes, net-metering has served a purpose. And yes, we should not abandon it without a strong comprehensive renewable energy policy to replace it.

But the time has come from Americans to break free of the straight jacket imposed by net-metering. It is time to liberate Americans from the tyranny of utility-company control of our lives and from the politicians and regulators who serve these companies. It is time to free Americans of all walks of life–from rich to poor, from conservative to liberal, from rural to urban—to produce renewably generated electricity when they want, where they want, and in the amount they want—and to do so for a profit. What could be more American?

As the late German politician Hermann Scheer, one of the co-founders of Germany’s modern system of advanced renewable tariffs, frequently said, the time for half-measures–for timid responses–is past. There is no time to lose.

Comments

Atanacio Luna

Quail Valley, CA, USA

January 22, 2014, 10:33 am

FIT or NMit, it is just a way to make electricity more costly, in a roundabout way to reflect proportional damage to the ecology. The most direct way to fix the problem is to identify it as the problem, and to design solutions accordingly. Pluvinergy sets out to remove Shell, as good as they might be by comparison, from the energy equation. Shell should be a feedstock company; petroleum, gas, and other fossil fuels should not be burnt for fuel anymore than the furniture in your house should be used for heating. Check out Pluvinergy.com. And, please don’t be a know it all without first reading the book. Old timers say it is a perpetual motion concept without knowing. The fact that Pluvinergy also supplies our food and water from the same process results from the fact that it is a natural process; whereby humanity adds to the natural beauty of life, not detract.

Brad Milne

Ottawa

January 1, 2014, 1:28 pm

In Ontario we have both Net metering and FIT , The fundamental concept grid parity is missed in this blog ? Now in Germany Guerrilla solar (unregulated net metered solar systems)is a real concern for the grid operators . In Ontario the ROI on FIT is seven years and Net Metering is ten years . The government has stated yearly increases for the next three years makes simple math for consumer here . Consumer are making the move to Net metering . The concept of a ROI based on market price is making huge progress this year , The trend will kill all under 10kw FIT new solar installs in under two years here in Ontario .

Bart Preecs

Walla Wala

December 31, 2013, 8:29 pm

Paul, this is an interesting article, But I think the first step in rationalizing our energy policies would be to put a price on carbon, ideally in the form of a revenue-neutral, carbon-tax-and dividend plan.

As NG noted a few months ago, British Columbia is getting a bit lonely with their pioneering approach, which I’m told is working well.

Perhaps you could write a similar compare-and-contrast article on the differences between a carbon tax and cap-and-trade systems.

RabagoEnergy

Denver, Colorado

December 31, 2013, 2:02 pm

Sorry, Paul. I just can’t agree completely. FIT is a bad idea for the residential and small commercial market in the US. Here are some concerns:

First, it creates taxable income issues and “sale of electricity” issues that could void property tax exemptions.

Second, it does not “run with the meter/property,” meaning that there could be significant timing differences between investment, payments, and yield.

Third, this makes it harder for new market entrants to really calculate value and payback.

Fourth, those FIT contracts could be seen as long-term debt obligations on utility balance sheets.

Fifth, the PV market is maturing fast, but still far from “mature.” This means any longer term payment scheme could create risk of underpayment or overpayment – which in turn can create political risk.

Finally, the approach makes the target the FIT rate, as with setting renewable portfolio standards, it shifts political, business, and intellectual capital away from creating self-sustaining markets and toward maintenance of the subsidy scheme.

I have created and supported FIT and PBI schemes for larger, more mature customers around whose opportunity financing is or can be organized.

For residential and small commercial customers, I recommend a Value of Solar rate or tariff.

Mike Jacobs

Boston, MA USA

December 31, 2013, 10:42 am

Good topic, good work NatGeo and Paul.
FIT is a good model for utilities, and should provide a path out of “us vs. them” that has been too common in the renewables world. The FIT model has the customer sell all the energy they produced, and buy all that they consumed. Sales do not shrink for the distribution utility. Sales do shrink for the powerplant owners, but this country adopted competition at the wholesale level in the 1970’s and 80’s.
A fascinating idea is being tested to use the buy-all, sell-all for energy efficiency retrofits on commercial buildings where the tenant pays the electric bill, but doesn’t own the building.

Jay Heaman

Woodstock Ontario

December 30, 2013, 11:44 pm

An ironic threat to the expansion of renewable energy that seems to avoid notice is incessant utility bashing. I’ve been employed by an electric utility for 25 years and see renewable energy as an inevitable yet critical evolution of our business. Pitting electric utilities against virtually everyone else does little to foster the cohesive attitudes that are necessary to promote successful integration of renewable energy into the grid.
In most jurisdictions, the utilities do not ‘own’ the wires. As rate payers we collectively own the network and should make it clear to the supply authorities that we require our utilities to be partners in this evolution. The unintended result of slamming utilities is to re-reinforce the idea that they are the owners. Rate models will need to change, but it’s in everyone’s best interest that the wires network we have developed over the past century continues to thrive.

With respect to FIT versus net metering, one observation in Ontario is the fact that conservation wanes with FIT, whereas net metering encourages conservation. A prorated FIT model that rewards conservation through load matching should be developed to re-install conservation strategies for FIT contracts.

David Dobs

Cumming, GA

December 30, 2013, 12:27 pm

As a comparison with the US net-metering model, I would very much like to see how an FIT-based system works for a homeowner in Germany, for example.

Craig Morris

Germany

December 28, 2013, 6:27 am

jimbeau11, you don’t need utility support for FITs. You need a government responsive to popular will and committed to renewables. German utilities were not asked what they thought when FITs were first implemented.

Chris Young

Ottawa, Canada

December 27, 2013, 9:24 am

A properly administered Feed-in-Tariff program has many advantages over the netmetering and tax credit system that is currently in place in the United States.

The current policy of tax credits encourages the highest possible installation cost in order for the system owner to maximize the amount of income tax avoided through the tax credit. In practice this means less tax is collected from Corporations and High Net Worth Individuals with sufficient tax liabilities to make the investment worthwhile. Those who invest in wind and solar effectively pay less tax to Government and further result in a loss of electricity sales to the host facility thereby negatively impacting utilities. In the end, those who do not invest in solar pay through higher taxes and utility bills.

In comparison, a Feed-in-Tariff is paid for by the electricity rate base (higher cost electricity is blended with lower cost sources so impact is negligible) not by the tax payer. In Germany, the rigorous administration of their FIT program has resulted in new contracts being issued for 20yrs at rates that are below the current retail electricity price. This may seem counter intuitive but, the FIT contract is still an attractive investment because banks will lend to the guaranteed revenue stream and the returns are stable and predictable.

The other advantage of the FIT process to Government is that income from the sale of electricity is considered taxable income. So rather than loosing income from those who would otherwise be paying taxes, the FIT policy expands the revenue base for Government.

Yes there are those who would rather pay no taxes but, I doubt they would willingly choose not to have public infrastructure like roads and schools etc.

jimbeau11

December 26, 2013, 4:33 pm

Big supporter of distributed generation here, but how is FIT going to be supported by utilities, but not net metering? With net metering, all they have to buy is the exported energy.

With FIT, not only do they have to buy all of the exported energy, they have to buy all of the electricity produced by the system, and do so at a price that is usually well above PURPA avoided cost.

At least net metering lets the homeowner claim the energy conservation benefits of a PV system, because the exported energy, by definition, is what is net of their own electricity use. FIT wouldn’t help with that at all.